Bigger is better: Large companies good for the economy, study finds

Large companies contribute disproportionately more to a country’s economic performance than smaller ones, according to a new EU-funded survey.

Bigger corporations are more productive, they pay higher wages, enjoy higher profits, and are more successful in international markets, said the report by European Firms in a Global Economy (EFIGE), an EU-funded project.

Therefore, a country's economic performance can be linked to its number of big corporations, says the survey, which was carried out under the supervision of Brussels-based think tank Bruegel.

This is one of the conclusions in EFIGE's new report, Breaking down the barriers to firm growth in Europe. The report systematically explores the interaction between firm and country characteristics through a survey of about 15,000 manufacturers in Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom.

Differences in the firm size profile of different European countries are dramatic, according to EFIGE. Companies in Spain and Italy are, for example, on average 40% smaller than those in Germany.

According to the authors of the report, it is important to understand the roots of the differences as they are "key to improving the economic performance of Europe’s lagging economies."

The low-average firm size translates into a chronic lack of large firms. In Spain and Italy a mere 5% of manufacturing firms have more than 250 employees, compared to a much higher 11% in Germany. The average firm size in Spain and Italy is, respectively, 49.3 and 42.7 employees, compared to 76.4 on average in Germany.

Analysts say large companies are more innovative

In all the countries in the survey, the exporting firms are also found to be larger and do more research and development (R&D).

"This suggests that barriers to R&D and trade are the main culprits that slow down firm growth. Countries that face higher trade costs provide fewer opportunities for businesses to become large. And a relative absence of R&D spending puts a break on firm growth, leading to a size distribution skewed towards smaller firms," the report said.

Trade and innovation are not independent, but interact in significant ways. For example, a reduction in trade costs tends to stimulate innovation as it allows firms to become larger. This makes it easier for the firm to bear the fixed costs of R&D.

To identify the barriers to firm growth, the authors behind the report say a model is needed to analyse different factors such as trade costs, innovation costs and tax distortions.

For example, if trade was to be ignored, then the model would predict that both Spain and Italy have high innovation costs. But once trade is introduced, the model finds that the large proportion of small firms in Italy is mainly due to high innovation costs, whereas in Spain it is due to a combination of high trade and high innovation costs.

If Italy wants to reduce the barriers to business growth, the country should mainly focus on promoting innovation. In Spain the emphasis should also be on cutting trade costs and improving access to international markets.

Positions

President of European Small Business Alliance (ESBA), a non-party political group,David Caro commented on the report:

"There is a paradox to be found here. We all agree that small and medium seized enterprises (SMEs) are the 'backbone of the European economy' and we look to our small companies to get us out of the crisis, yet large businesses still contribute disproportionately more to our economy. Unfortunately, this reaffirms the message that we have been voicing for years: cut down on the regulatory and administrative burden for SMEs, improve access to and cost of finance and allow small businesses to prosper, innovate and grow," Caro said.

"The one-size-fits-all approach does not work; small businesses cannot deal with the same rules and regulations as their large counterparts, which is why we need to fully implement the Think Small First principle once and for all. Less than one percent of EU businesses are large companies. The EU institutions have a responsibility to maximise the growth potential of the remaining 99% of European businesses, in order to become truly competitive," he added.

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0 responses to “Bigger is better: Large companies good for the economy, study finds”

While it is true that the larger companies on average enjoy higher per worker productivity than smaller and thus enrich the nation more, this article leaves out other factors where the smaller companies excel.

I refer to new ideas; Nearly all of these are developed to workable products and most are first brought to market by firms of less than $1,000,000.00 net worth. Many are like Apple, small start ups that grow to large sizes and maintain identity; others are ABSORBED by the biggies in one way or another. In any case it is the small to medium firms that create 90% of new jobs.

Babies in a healthy environment are the ONLY way to produce productive adults; businesses are similar!

It may make great reading for Brussels-based think tank Bruegel but in the long-term the largest companies in the world are destroying humankind’s ability to sustain itself in the long-term. Why is I ask that these so-called think tanks only look at the present and never project what is happening now into the future? Indeed they may say that big business is good for an economy now but turn the clock forward to say 2030 and beyond, and the end result will be a perilous state of socio-economic conditions that they have brought to bear upon humanity. To put matters into context, now several ‘Elements’ are near extinction for a prelude of what big business is bringing to world at large year-on-year.

They basically do not think of sustainability but the bottom-line and that is a fact if you look at how the earth’s natural resources are being ravaged at incredible rates around the world. When they understand or care to understand what their rush to personal wealth and power is now creating, they may understand the errors of their global development disaster that lies upon the horizon for humankind. Indeed with the ‘Global 2000’ controlling last year 51% of all global economic turnover, they are not interested in what the spin-off to a nation will be, but what wealth they can acquire simply for themselves and the bulging pockets of their shareholders. But a day of reckoning will also come for these behemoths of global industry as the reports by the Royal Society and eminent scientists at MIT clearly detail. Have they ever read these reports? I very much doubt it and even if they did, they would simple continue to ravage the world for their own self-interest as usual. Unfortunately it will be humanity that will suffer like never before from these non-innovative global development mechanisms and where this will start to become relevant to all over the next 20 years. Let see then whether the Brussels-based think tank Bruegel is so sure that big business is such an asset then. Probably they will because they are funded by big business and government and where a leopard never changes its spots now does it? The world is heading to a disastrous state of affairs with these global companies running the show as they create the future. But this time it will be a future where the world will witness the darkest days of the human experience. Time for a major sea-change in thinking before it all becomes reality and a world like the RS and MIT reports forecast. Are we all completely mad and cannot see the woods for the trees is the big question?

Dr David Hill
World Innovation Foundation
United Kingdom – Switzerland

It may make great reading for Brussels-based think tank Bruegel but in the long-term the largest companies in the world are destroying humankind’s ability to sustain itself in the long-term. Why is it I ask, that these so-called think tanks only look at the present and never project what is happening now into the future? Indeed they may say that big business is good for an economy now but turn the clock forward to say 2030 and beyond, and the end result will be a perilous state of socio-economic conditions that they have brought to bear upon humanity. To put matters into context, now several ‘Elements’ are near extinction for a prelude of what big business is bringing to world at large year-on-year now.

They basically do not think of sustainability but the bottom-line and that is a fact if you look at how the earth’s natural resources are being ravaged at incredible rates of extraction around the world – and in the name of a future sustainable world order. Nothing could be further away from the truth. When they understand or care to understand what their rush to personal wealth and power is now creating, they may understand the errors of the global development disaster that lies upon the horizon for humankind and are creating. Indeed with the ‘Global 2000’ controlling last year 51% of all global economic turnover in nominal terms (some $36 trillion according to Forbes), they are not interested in what the spin-off to a nation will be, but what wealth they can acquire simply for themselves and the bulging pockets of their current shareholders. But a day of reckoning will also come for these behemoths of global industry as the reports by the Royal Society and eminent scientists at MIT clearly detail. Have they ever read these reports? I very much doubt it and even if they did, they would simple continue to ravage the world for their own self-interest as usual. Unfortunately it will be humanity that will suffer like never before from these non-innovative global development mechanisms and where this will start to become reality to all over the next 20 years. Let see then whether the Brussels-based think tank Bruegel is so sure that big business is such an asset then. Probably they will, because they are funded by big business and government and where a leopard never changes its spots now does it – like Nelson said “ I see no ships” and where the same can be said here “that I see no Independence’ of thinking either? The world is heading to a disastrous state of affairs with these global companies running the show as they create an unsustainable future for mankind. Indeed this time it will be a future where the world will witness the darkest days of human experience and one where it may never save itself. Time for a major sea-change in thinking before it all becomes reality and a world like the RS and MIT reports forecast. Are we all completely mad and cannot see the wood for the trees is the big question? It certainly appears that way.

Dr David Hill
World Innovation Foundation
United Kingdom – Switzerland

The bigger you are the harder you fall. Enron brought down the many. The influence of the Mega-Companies whose turnover is greater even than many – assumedly largish Nations, like the Netherlands or Tunisia etc. – is so immense that they do not care too hoots about their effects. Bhopal is an example of what the mega companies get away with. If it had not been in India and 20,000 people had succoumbed to this in Winsconsin or Liege say the Company and its Assignas and Heirs would have been pilloried across the Western Nations for their actions. The same is equally true for the other countries that wantonly discharge chemicals and toxins in to the environment be it by liquid or gaseous or particulate discharges and so it is and ever was.

The only thing that matters to these Companies is maintaining an ever-larger turnover so as to massage the various Governments to their way of thinking. When your turnover is more than a sizeable proportion and you employ thousands of people your might inthe eyes of that Country is grossly over-sized in the opinion of the Government. Imagine the issue as it has been before-stated of such a company suggesting it up-sticks and moves off from one Country to another. These countries us any excuse to provide subsidies to encourage the Companies to remain! Big Business is obviously good for the Big Businesses. And the EU and its members states fall for it every time.

Thank you Karel and where at the heart of our long-term human sustainability problem is how the global 2000 operate. Considering how economically and financially powerful just 2,000 companies are I was amazed to note by Forbes that they only employ 165 million worldwide. As it is estimated that there are between 3 to 4.5 billion people eligible for work globally, a mere 3.5% to 5.5% of the working population controls $36 trillion or 51% of the world’s total annual economic turnover. This shows to me anyway that the 5% get richer by the year and the 95% remainder get rgressively poorer by the year. Not me saying this but current international studies from the UN, World Bank and several global charities of note.

But according to historical data up to the preset time we never learn now do we and certain people at the top with their heads in the sand such as those who run the Global 2000 group cannot see that their activities are systematically year-on-year collapsing the world economy as we run out of everything eventually and most probably in this current century. Sustainability is sacrificed on the altar all the time of profit (some say personal greed) and for the bulging pockets of rich shareholders. This madness is just the same madness in comparison that the Nazis had in thinking that they could achieve world dominination with the Japanese. Logic just goes out of the window for quick returns and where there is little consideration or concern of what they do puts a further nail in the coffin of humanity in the long-term. You only have to look at how the West has fuelled China’s economic rise over the lst three decades to see this and where vast inward investments over sustained years has created a global giant that is getting richer by the year. Indeed at its unprecedented growth rate China will not be seen in a couple of decades as a good investment but a threat to those companies that have invested and fuelled China’s rise. In this respect China is not a benevolent or charitable entity but one which will as a paramount consideration looks after its people to the demise of all others. But the mega-rich throughout the world are totally blind to this and they will be in many ways be the reason to why our civilisation over the next 100 years may very well cease to exist. Are we really an intelligent species therefore I would ask? I think not.

Dr David Hill
World Innovation Foundation
United Kingdom – Switzerland

It is interesting to note how the EU is continually to pander up to the Mega-Corporations, when Dr D Hill reports the issues in a very succinct way. Some of the most pervading series of disaters in industrial history have been as a result of and consequence of such corporations.
Remember Bhopal. In the early hours of December 3, 1984, methyl isocyanate (MIC) gas leaked from the Union Carbide India Limited (UCIL) plant in Bhopal, India. According to the state government of Madhya Pradesh, approximately 3,800 people died and several thousand (now reckoned to be over 38,000)other individuals experienced permanent or partial disabilities and a further “as yet” unknown hereditary defects in the subsequent generation of families (ranging from birth deformities and blind-mess at birth) have been determined as a result. Imagine had the USA company (the Parent Company) had had such an incident happen in the USA? The Court cases would still be rumbling on and the settlements would still be being negotiated.
Remember Chernobyl just two years later. Again the same generic issues, albeit partly a Government one!
There have been others – particularly in the Energy/Oil sectors and of ccurse most of these are Mega-Corporations.
Now we have the EU pandering up to these companies offering them get-outs for their “Carbon-Footprints” using various issues of “subsidy” to invite them to be participants in CCS (Carbon Capture and Storage) for which the very polluters are going to be paid lucrative and immoral amounts of money in order to keep them sweet!
In a more subtle way different styles of subsidy are given to Mega-Corporations through adjustments to commercial and often taxation rules. The Sugar Industry through its Lobby (and we all know the Companies involved therein) are subsidised to the hilt in order to promote the continued use of this “insiduous product” known to be the real cause of Obesity across the World. If we were to stop pandering to this Lobby Group and the Companies behind them and divert this land to real food crops it would be interesting to see the consequences. The Mega-Corporations in the EU that have collared the markets in Water and Waste Water and Waste Treatment including those that participate in Incineration and the likes is another area where Government Pandering to such Corporations is so distorting the way Municipalities/Cities/Departments/States and Countries think that it has generated a whole traff of industry manipulation that is centred on the Finance Design Build and Operations system. These programmes of work are often so highly priced (and one questions the needs-be of these issues in some instances!) that the purchasers have very little choice but to buy them over a very long “term” period (often now over 40 years) that as a consequence it is driving such purchasing Municipalities—-Countries etc to long-term financial misery (as shown in South America and Africa etc, and even in the EU) so that there is no get out even when new technologies developed by the smaller industrialists offer far better solutions. The incineration of waste issue is a typical one here where companies from France Denmark the USA and Japan continue to proffer such systems yet the smaller companies cannot get a look in even with their superior programmes. And coupled with this these proposals and financing routes have raised a whole series of “advisors” and “experts” or “consultants” who have fallen for the issues and blatantly believe in the system regardless of whether the buyers can afford them, and regardless of knowing that there are better options that are cheaper and more environmentally acceptable.
The whole issue abou the article here is shrouded in a “cloak and dagger” miasma of misconceptions about how these organisations have the power to manipulate business and the time has come for some such organisations to be broken up. We can think of a few major corporations in France Spain Germany Denmark and the UK that should be looked at here for their Monopolistic Attitudes and Anti-Fair Trading issues for that is what this is all about. And the EU/EC should seriously consider not pandering up to these Corporations in the way that they do and really support the innovators and the small companies.

These mega-corporations do not realise yet but they are signing their own death warrants with the way in which they operate and treat humanity as if they were a mere commodity. Manipulating mankind for their own devices. A day will come when they realise that their way of doing business is not sustainable in the long term as they will eventually disintegrate themselves, but where presently they just do not care as long as they can fill their pockets constantly with vast riches and their palms are constantly crossed with silver just as Judas did when selling Christ to the moneymen.

There are a few theory now emerging why these so-called captains of global industry operate like they do. One is where they have no empathy at all with humanity and where they have no qualms in destroying anything so that they get whatever they want. This was outlined just this year in a Horizon programme entitled “Are you good or evil”. It is recommended that all humankind that has access to the internet views this programme as only through knowing what could be wrong with these people can we hope to change the direction of where the world is eventually heading – to a world that cannot support the human race, whether they be in the poor regions of the world or presently in rich nations, as it will affect all in time.
Another is the exposé of the pharmaceutical industry and where the majors have got their roots – http://foolscrow.wordpress.com/2010/07/27/return-to-nuremberg-big-pharma-must-answer-for-crimes-against-humanity/

And a final outline of many, to why these behmoths act as they do, is the way that Nature Magazine in 2008 did the dirty work of the international pharmaceutical research network (working for Big Pharma) in stopping the introduction at source of a strategy to prevent all future killer pandemics. The reason, there was not the multi-billions in drug sales and profits in perpetuity that are required for the major pharmaceutical industry to feed off constantly – http://avian-influenza.cirad.fr/content/download/1931/11789/file/Kennedy-F-Shortridge.pdf

Indeed if anyone with any common sense undertakes an in-depth analyses of the 2009 Swine Flu pandemic and compares it with the Spanish Flu of 1918 (where up to 100 million lives perished), they will soon come to the conclusion that most of us will be well dead by the time we received an antidote. For the Spanish Flu in the 2nd wave after it had reconfigured/mutated itself into the lethal easyly-spread human killer, did its worst between week 16 and week 24 where most of the infected died. In comparison in 2009 it was only after 7 months 1 week when an antidote was created after the first death and ready for manufacture (an enormous job in itself to produce a vaccine for the world. But thereafter it would have to be distributed around the world alao, a further logistics nightmare that would take monts and months to complete. Therefore that is why I and others have been saving for a while now that the drugs strategy is absolute madness to nowhere and where it is only to line the pockets solely of the huge drug companies. People consider through complacency that it will never happen, but history tells us differently. Indeed Margaret Chan D-G of the WHO has said many times that it is only a matter of time not when such an equivalent killer pandemic emerges. But this time it will not be a 100 million lives lost but tens of hundreds of millions due to our very fast transit systems now and where in comparison to 1918 the fastest mode of travel was the slow boat to china. In the modern world with rapid transport systems, such a human killer virus would spread like wildfire throughout the world and that is why I say that it would literally take up to possible and maybe more than 1 billion human lives. Do the large pharmaceutical companies care that they do not tell us this, I think not as profit, greed and shareholders pockets is all that they care about and humanity basically can go to hell.

Dr David Hill
World Innovation Foundation
United Kingdom – Switzerland

It is about time these Companies were broken up and their monopolistic and uncompetitiveness was shown up as a shambles.
We in Italy have the same issues and now the “fat has come off the goose” with the inordinate subsidies given to them exposed for what they are the better. Our Oil Companies across the EU are subsidised to the hilter bi direct Government help. The Uk has unilaterally given a Taxation reduction to the Oil Companies working in the North sea in contravention of EU Policy. (How does the EU DG Tren view that?) Likewise the Spanish Government has continually subsidised its companies such as the Banks and the major construction Companies and the likes with the consequences that they were told that this was the way to invest in order to reduce their Corporate taxes. And it goes on and on. Now the Wind Energy Industry (who has had it so good for so long with huge subsidies in Capital Expenduture abd Tarrifs are baulking at the fact that they cannot make their huge profits any more (well actually less huge!) and that they cannot sell these facilities onwards before they even turn a blade in the wind since their IRRs are now less than 20%! Oh what a shame! The same is true with the mega-corporations that have got on the band-wagon with Biomass-incineration (Burning? or Power Stations to use the common idiom) for again these Mega-Conglommerates have taken us the tax payers for a ride with claimong huge “UP-Front” subsidies to build them, and then claim huge “Feed into Tarrifs” and then are allowed to pass on the “Hugeliy-Inflated” Energy Costs to the CAPTIVE CUSTOMERS all on the back of “So-Called” green energy when the only beneficiaries are the Company Shareholders. Now we see the pandering going on even further with the EU offering Huge Green-House Gas sops to the Airlines so that their “feelings” about the GHG applications are mollified with other “Betterments”. The CCS schemes we hear of here are just another ruse to subsidise the Energy Companies by allowing them huge “Contracts” to be carried out at the EU Tax Payers Expenses when the very polluters are the Energy Companies. Pandering to the Big Companies (as stated before!) you must be joking, this is down-right mis-placed subsidies from the Tax Payers in the EU and we are not going to put up with it much longer.
Did we not read that the Oil Companies across the World are given HUGE HANDOUTS by Governments that are equivalent to €400,000,000,000–00 per year (€400 Billion per year!)Let’s have a Robin Hood Tax on these Companies.
Do we not continue to hear how the Mega-Banks are continually being bailed out by the EU again in HUGE HANDOUTS by Governments at the same time? Roll on the Robin Hood Tax on Banks.